Unlike most things that you buy in life, buying life insurance can be tricky. When you purchase a life insurance, you are essentially transferring the risk of unfortunate events from yourself to your chosen insurer. When an unfortunate event strikes, your life insurance will help your loved ones deal with the surprises that life throws at you. Among the various types of life insurance products, term insurance provides the most basic insurance protection that everyone will need.
How does term insurance work?
The name might sound intimidating, but term insurance is actually pretty simple in concept. Let us help you break down term insurance into bite size information. When you purchase a term insurance policy, you will pay a monthly or annual premium to your insurer. In return, your insurer will provide insurance protection for a fixed period of time.
For example, if you buy a 10-year term insurance policy, you will pay premiums for the next ten years in return for insurance protection. If the insured life (yourself) meets with an event that results in death or total or permanent disability (TPD), the insurer will grant the payout based on your agreed sum assured in your term insurance. If you live past the insurance protection period, you will not receive anything at the end of the term. The term of coverage typically ranges from 5 to 40 years.
Types of term insurance
There are two types of term insurance that you can opt for: Yearly renewable term insurance and level term insurance.
Yearly renewable term insurance
A yearly renewable term insurance has no specified term of coverage. You do not have to choose your term of coverage. Every year you will be given the option to renew your term insurance without having to undergo any medical underwriting. The other characteristic of yearly renewable term insurance is the increasing premium. As you age, there is a higher risk associated to insure your life. Thus, you will need to pay higher premium, especially in later stages of your life.
Level term insurance
Since premiums are usually based on age and health, the cost of insuring your life becomes more expensive as you age. This imbalance in premium payment can become a problem, especially if you do not have financial discipline. Thus, insurers came up with the level term insurance. As the name suggests, level term insurance means that you will pay a level premium throughout the term of coverage. In the earlier stages of your life, you will be paying more premium compared to a yearly renewable term insurance. This will help to cover for the rising premium that will come in the later stages of your life.
Why should you consider term insurance?
1. Basic financial security
The main reason for buying insurance is to protect your loved ones against the unfortunate (and unlikely) event of death or TPD. In the event of death or TPD, it can put a real financial strain on your loved ones, especially if you are a breadwinner. With the right term insurance in place, you can take care of the financial needs of your loved ones and provide them with the necessary financial security. This will help them tide over the critical period before they can find alternative income.
Among the various types of life insurance policies, term insurance has the highest affordability. This is because term insurance only offers pure insurance protection coverage without any savings element. As such, the premium associated with term insurance is much lower compared to endowment or whole life insurance.
FWD insurance offers a 10-year level term insurance with sum assured of S$400,000 for S$400 premium per annum (with critical illness benefit). In contrast, a 10-year endowment insurance with sum assured of S$81,000 from eTiQa will cost you S$10,000 a year. Great difference in price and the sum assured, isn’t it?
Where to find the best term insurance deals?
If you have concluded that term insurance is right for you, the next step is to find the best term insurance deal to consider. CompareFirst is a useful website that can help you easily compare the different types of term insurance policies that Singapore-based insurers have to offer. You can also approach any financial advisor and get a term insurance from them.
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